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5 Questions to Ask Before You Pass a Restaurant to Your Children

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Make sure your business and your kids are ready before you hand over the keys.
By Sean Dawson March 2017 Vendor Bylines

Letting go of a restaurant into which you have poured your heart, soul and money is stressful enough. Handing over the keys to a new owner can be easier if you take the time to ensure you’re handing them to the right person.

If you’re lucky enough to have children who have an interest in running your restaurant, this transition might be easier than selling to someone you don’t know and can give you the opportunity to continue your legacy.

However, the flipside can also be true: Giving your children the reins to the restaurant also presents a set of unique challenges like worrying about their financial security, the legacy of your life’s work, and frankly, a potential case of ”founder-itis” when you find yourself interfering with how your kids are running what used to be your business.

Here are some questions you should ask when thinking of transitioning your restaurant to your children:

1. Do Your Children Know What They Are Doing?

Be brutally honest with yourself. Do you have confidence that your children are truly capable of running your operation? Putting your parental emotion aside, ask yourself, “Is this really the right career choice for my kids? Do they demonstrate a passion for this business?”

2. Do Your Children Have the Right Skills?

Serving food, busing tables, and hostess duties are jobs that teach your children about the operations and culture of your restaurant. Often those skills aren’t the ones they’ll need to run the restaurant. Do your children have the basic business acumen necessary for running your entire enterprise? Can they understand a balance sheet? Will they recognize if the restaurant is profitable or not? Are they aware of rules on hiring, managing, and terminating employees within the laws of the state in which you operate?

3. Do You Have the Necessary Support Professionals in Place to Help Transition Them to Ownership?

Relationships with your banker, attorney, and CPA can improve the odds of a successful transition and give your children with the support they will need when it comes to taxes, payroll, lease arrangements, and other important business operations. Be sure to sit down with your team to assess if your child has a complete grasp of the business basics they will need to run the business.

4. Do Your Children Have Realistic Compensation Expectations?

As you know, it’s important to align your personal financial goals with the financial realities of the size of salary you can pull from the operation. Cash flows aren’t always consistent, vendor relationships can fail, customers can be fickle, and the potential of a disaster like a fire or flood can wipe out the cash. Can your children handle a potentially fragile financial situation?

5. How Will You Manage the Transfer of the Business to Your Children?

Will you transfer ownership in the legal entity that owns the restaurant, like shares of stock and partnership interest, or will you simply sell the assets? Do you know “your number” in terms of the amount of compensation that you’ll need for the transfer, or would you rather gift a certain amount to your children?

These are only a few of the details to consider when determining whether to transition your business to the next generation. It’s important to find legal and accounting professionals with family business expertise who can help you navigate a successful outcome for both you and your children. 

Sean Dawson
Sean Dawson, CPA, is a shareholder in Mize Houser & Company’s Hospitality Services Group, which provides tax, accounting, payroll, bill payment and consulting services to restaurants nationwide.